2020 introduced a number of unprecedented situations that have required some massive adjustments. And now, with the tax filing season upon us, a raft of brand new challenges await ahead of the April 15 deadline.
Chief among them: uncertainty around the economic stimulus given to American taxpayers as part of the Coronavirus Aid, Relief and Economic Security, or CARES Act.
Last spring, in the throes of the first round of stay-at-home orders across the country, American taxpayers received up to $1,200 per person, with an additional $500 per qualifying child, of economic stimulus. How much was determined by the number of people in a respective household, and the taxpayer’s or household’s adjusted gross income for 2019 or 2018.
Sounds straightforward so far, right? Well, in a recent virtual seminar I conducted, it seemed that, as many professionals have begun to get their ducks in a row to help their clients in 2021, they’re not finding it to be so simple.
Lexi Clarke is the Chief People Officer for Payscale, a SaaS technology firm focusing on compensation management solutions. She has partnered with business leaders on HR and compensation projects at companies like Redfin, Convoy, Boeing and more. Lexi has extensive experience in people-first HR leadership, effectively supporting the growth and scale of the organizations she has been a part of to better attract, develop and retain talent. As the Chief People Officer, she is responsible for integrating compensation, rewards, HR, communication and more. She speaks on behalf of Payscale as both a practitioner and fair pay advocate. Lexi graduated from Muhlenberg College with a bachelor's degree in psychology.
Shift Technology CEO and Co-founder Jeremy Jawish became acutely aware that fraud detection was one area of the insurance industry that was ripe for disruption while working with a leading global insurance company. There, the seed was planted related to how artificial intelligence and advanced data science could be used to help insurers make better policy and claims decisions, driving positive business outcomes and greater customer satisfaction. Jawish, along with co-founders Eric Sibony and David Durrleman transformed the idea into reality and now insurers around the world trust Shift's AI-native solutions to help them solve some of their biggest challenges.
Dan Johnson is the managing director at F2 Strategy, a wealthtech management consulting company serving complex wealth advisory firms.
Chief among the questions I received was whether a tax professional needs to know how much stimulus a taxpayer received. The answer to that question is “Yes,” and somewhat surprisingly, that creates a potential complication.
Why? Well, for starters, many taxpayers have undergone a series of life-changing events: everything from migrating to virtual work to setting up their kids for remote schooling. As a result, these spring payments seem like they were doled out about 10 years ago. There are a large number of taxpayers who simply don’t remember how big of a check they received from the government.
Of course, along with those checks came documentation that taxpayers may have filed away. But that letter was discarded by many. Why? Some simply did so in haste, while others might not have thought it would be relevant to their 2020 return.
Whatever the reason for a missing paper trail, taxpayers who used direct deposit should be able to track down this exact sum on their bank statement. But for those who were issued checks or prepaid cards, it might cause a hiccup in the process, and in some cases, delay return preparation this spring.
Individuals have their questions, too. After consulting with tax pros, I’ve been told that many taxpayers are unsure if the stimulus was a loan that needed to be paid back. The stimulus, of course, was not a loan and doesn’t need to be paid back to the government, unlike business owners who took out loans as part of the Paycheck Protection Program that haven’t been (or won’t be) forgiven. But the fact that more than one tax professional said they had clients ask could be a harbinger for a season where filers are coming in with a lot more uncertainty than usual.
Now, as a second round of stimulus is starting to hit taxpayers’ bank accounts, it would behoove tax pros and payers alike to be diligent about documenting these payments. Forward-thinking tax professionals can get ahead of a new round of uncertainty by making sure their clients keep thorough records of anything, and that’s important. Because from all early indications, it seems like filing season is going to be filled with headaches: a cherry on top of the 2020 sundae.
